StreetSmartPost

Saturday, December 12th, 2009. Revised 10:45 to add ‘Charts of the Morning’.

The House passed its version of new regulations for the financial industry yesterday. It includes not only new business practice rules for banks, brokerage firms, broker-dealers, mortgage brokers, etc., but also takes away much of the power of the Federal Reserve to make consumer-protection rules, moving those responsibilities to a new Consumer Financial Protection Agency.

The Wall Street Journal headline on the story is “House Strikes at Wall Street”.

Wouldn’t that be awful. But as Wall Street knows, it isn’t over ‘til it’s over.

The activity now moves on to the Senate, which has its own version of what new regulations should look like.

Meanwhile, the Journal reports that even in the House’s version “there is a provision buried in the bill that carves out exceptions that allow a number of companies to avoid the fresh scrutiny envisioned by the White House. The beneficiaries run from corporations like General Electric and Pitney Bowes to USAA. . . The original plan envisioned bringing them under the same regulatory orbit as regular banks, in response to lapses made clear by the collapse of AIG.” [AIG also had many different divisions, and the regulators under which the various divisions operated had no sense of the way each individual division’s financial risk-taking combined to create excessive risk for the overall conglomerate].

Isn’t it interesting that when GE was in trouble last year it insisted that because of its huge financial lending and banking operations it should be able to declare itself a financial services firm, and have TARP money and the other bailout efforts made available to it. And when the list of financial firms was released that were protected from short-selling last year, GE was prominent on the list.

But now that financial firms are to be regulated GE is apparently to be exempted.

Congress’s reasoning (assisted by the lobbying efforts of the companies) is that if not exempted, companies like GE and Piney Bowes, which have large banking-type operations, would either face having the entire company regulated, or would have to spin off their financial operations.  So? Why isn’t that fair?

It’s also interesting that USAA, one of the nation’s largest federally insured financial firms also has one of the largest lobbying efforts, and spent $5 million lobbying Congress in the first nine months of the year. And it is to be exempted.

In yesterday’s post I noted how Wall Street and the major financial firms were always found at fault in investigations after serious bubbles, financial collapses, and bear markets, but always managed to have Congress water down the regulations that were belatedly implemented to prevent a recurrence.

And they then were able to operate pretty much as before under the new regulations they helped design, by simply finding other ways to mislead the public, other ways to take excessive risks themselves, etc., until in trouble and needing taxpayer bailouts again.

And if the new regulations eventually became a hindrance, they had no trouble having them quietly revised or abolished, usually choosing a time when investors were deliriously happy with the gains they were making and didn’t care what was going on in the background.

Wall Street and the banks have been lobbying heavily this year. The final version of regulatory changes that come out of the Senate will leave plenty of loopholes that will allow the cycle to continue.

Subscribers: There will be an important Special Report and hotline in the subscribers’ area of the website by mid-day tomorrow (Sunday), hopefully sooner. And in case you missed it there is a ‘Gold, Bonds, Dollar, Inflation’ update there from Thursday, and the regular in-depth intermediate-term ‘Stock Market Signals and Recommendations’ update from Wednesday.

Economic reports continue to surprise on the upside.

Yesterday it was that retail sales were up 1.3% in November, almost double the consensus forecast for a 0.6% rise. And the University of Michigan/Reuters preliminary Consumer Sentiment for December rose significantly, from 67.4 in November to 73.4 this month.

Earlier in the week it was reported that the U.S. Trade Deficit unexpectedly narrowed a big 7.6% in October. And that the cost of TARP may be $200 billion less than expected.

Those were added to the big surprise in the Jobs Report the previous week that only 11,000 jobs were lost in November, while the unemployment rate fell to 10.0% from 10.2% in October versus forecasts that it would rise again.

And those reports were in addition to the positive reports from the housing industry on rising home sales, rising home prices, and even a one-month decline in mortgage foreclosures.

It sure is a different atmosphere than a few months ago.

Non-Subscribers: The sample issue of the Street Smart Report newsletter has been updated to a later issue you might find interesting. To go to it click the link near the top of the column on the right. 

But 2010 will still experience problems.

While the largest banks continue to flourish, regional banks, deemed as not too big to fail, continue to struggle.  Three more failed this week, in Florida, Arizona, and Kansas, bringing the total to 133 for the year so far.

It’s reported that there are now more than 400 banks on the Fed’s ‘troubled bank’ list, and the FDIC expects the failures to continue through 2010.

There is also probably more to be heard in 2010 regarding the debt risks of government-owned ‘sovereign wealth funds’, particularly those of emerging markets.

And the results of the surging commercial loan defaults are yet to be felt.

Fed Chairman Bernanke warned in his speech on Monday that the U.S. economy is facing “formidable headwinds” and will continue to struggle, warning that  reluctant consumers, tight credit, and a weak jobs market will restrict the recovery.

The most consistent market pattern of all takes place next year.

Since at least 1918, a significant rally has taken place from the market low in the 2nd year of every Administration to the high the following year. Even the conservative Dow gain averaged 50% in those rallies.

It has taken place regardless of which party was in office, and regardless of what the surrounding conditions were; high or low interest rates, booming economic times or recessions, war or peace, low inflation or high, etc.

It’s also interesting that the rally off that low has marked the end of by far the majority of recessions and bear markets during those 90 years.

So even if there is a double-dip in the recession, it would almost surely end during the year next year.

The rally off the 2nd year low next year could also mark the end of the long secular bear market that began in 2000. We’re working on that research right now.

Yesterday in the U.S. stock market.

The U.S. market closed up for the day, rallying from the open to the magic hour of 11 o’clock, when the usual counter-trend move took place, followed by a resumption of the rally to the close.

Are you beginning to catch on to why we tell subscribers, (and why I recommended in my book) that there’s no rush to place orders at the open in the morning? While it often seems the market is getting away from you, there is most often a second opportunity, often a better opportunity, to get better prices in the counter-trend move that frequently takes place after 11 am.

Yesterday’s Intraday Chart:

The Dow closed up 65 points, or 0.6%. The S&P 500 closed up 0.4%. The NYSE Composite closed up 0.3%. The Nasdaq 100 closed down 0.4%. The Russell 2000 closed up 0.8%. The DJ Transportation Avg. closed up 0.5%

Global markets for the week.

The ‘monthly strength period’ took place in accordance with its history the previous week.

This week was the week before the quarter’s quadruple- witching options expirations week, and they tend to be negative. But after beginning with two down days, including a triple-digit down day on Tuesday, it wound up only flat to fractionally negative for the week.

Gold continued its plunge that began late last week.

If you’d like to see a three-month chart of any or all of the above indexes click here, and then click on any of the markets in the similar list at the left side of the page it takes you to.

What’s next for stock markets?

Next week brings a quite heavy schedule of potential market-moving economic reports, including the Producer Price Index, New Home Starts, the Fed’s FOMC meeting and announcement, etc. To see the full schedule click here, and look at the left side of the page it takes you to.

Stock Market Patterns.

The next weekly pattern is that next week is the options expirations week, and they tend to be positive.

Interesting Charts of the Morning.

A few charts to stimulate your thinking:

Could it really be that the beaten down  U.S. dollar is going to reverse to the upside, that the U.S. is going to be seen as the global safe haven again?

Is the U.S. market, flat for four weeks now in spite of day-to-day and week-to-week volatility, just resting and consolidating its gains prior to a new upside breakout, or contemplating something else?

And what’s going on with the previously popular ‘BRIC’ markets (Brazil, Russia, India, and China)? 

And emerging markets, which have made no further headway, still at their level of two months ago, in spite of all the recommendations from Wall Street that emerging markets will out-perform the U.S.?

Please scroll down to see other recent ‘Interesting Charts of the Morning’.

I’ll be back Monday morning after a look at events over the weekend, action in Asian markets Sunday night, and early pre-open news and reports Monday morning.

Meanwhile, to read my weekend newspaper column ‘Gold Lost Its Glitter in a Hurry – Again!’ click here!

Subscribers: There will be an important Special Report and hotline in the subscribers’ area of the website by mid-day tomorrow (Sunday), hopefully sooner. And in case you missed it there is a ‘Gold, Bonds, Dollar, Inflation’ update there from Thursday, and the regular in-depth intermediate-term ‘Stock Market Signals and Recommendations’ update from Wednesday.

Non-subscribers to Street Smart Report: While it’s helpful to look at daily and short-term expectations, it is the intermediate and longer-term signals and market moves that are most important to investors. So, please consider a subscription to our independent research and recommendations. The cost is equivalent to the cost of two cups of coffee per week. Can you afford not to subscribe?

Street Smart Report Online provides our intermediate-term signals, outlook, and recommended holdings. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 22nd year. In-depth weekly reports, newsletter, hotline, and much more! As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.